by Ganesh Sahathevan
Bank Negara will soon have a new Governor, Rasheed Ghaffour. Given that Prime Minister and Finance Minister Anwar Ibrahim has warned that interest rates can be expected to continue to rise, Ghaffour must address the problem of bank and insurance company bonds portfolios adversely affected by rising interest rates. Outgoing Governor Shamsiah continues to pretend that it is not a problem for Malaysian banks and insurance companies (about which she remains silen). Unfortunately, her pseudo confidence continues to be shattered by Tune Protect's chronically low share price. Tune Protect's share price was expected to recover once travel bans were lifed but the recovery has been weak, and it does appear that Tune's bond portfolio is a drag on its share price.
TO BE READ WITH
Thursday, March 30, 2023
Bank Negara Governor silent about insurance companies' bond portfolios - Tune Protect would be a good place to start
by Ganesh Sahathevan
In August 2022 RAM said of Tune Protect:
Market volatility will likely remain heightened this year. To minimise this risk, TPG has repositioned its investment portfolio towards shorter-tenure government bonds.
Bank Negara Governor Nor Shamsiah has insisted that the turmoil on bond markets worldwide are irrelevant to Malaysia's banks, but she has remained silent about the consequences for insurance companies like Tune Protect.
As reported last year on this blog:
Problems at Tune Protect may not be contained given its reinsurance business - Bank Negara negligence in policing Tune could affect entire Malaysian insurance industry
TO BE READ WITH
Wednesday, March 29, 2023
Bank Negara's Sunshine Sally says Malaysian banks' bond portfolios unaffected by rising interest rates -Governor Nor Shamsiah Yunus argues that there are no realised or unrealised losses suffered
by Ganesh Sahathevan
In keeping with typical Bank Negara Malaysia style, Governor Nor Shamsiah Yunus has said:
“When it comes to MTM losses, bonds that are held in the banking books, which are not MTM, are very small. It only accounts to about 6%-7% of their total assets, unlike Silicon Valley Bank, which was about 40%.
“And even if you were to MTM the 7%, the capital ratio of the banks would just decline by one percentage point. The 18.4% (total capital ratio) that you see is net of MTM, it is already at fair value,” she explained.
Marked-to-market simply means accounting for unrealised losses. "Not MTM" means the bonds are being traded, with profit or losses recognised, with the usual consequences for capital. Either way, in a an environment where interest rates are rising, losses will be suffered. Not however, according to Nor Shamsiah, who seems to be saying that no losses have been incurred, and even if incurred, it will not matter.
Rating Agency Malaysia , which has a reputation equal to that of Bank Negara puts it this way:
Moreover, less than 40% (on average) of bond holdings in Malaysia’s eight major banks are classified as HTM while the rest are marked to market. This means that fair value losses on bond securities are already largely reflected in the banks’ capital position.
"HTM" means "Held To Maturity". If not "Held To Maturity" then it must be traded. Therefore "fair value losses on bond securities are already largely reflected in the banks’ capital position" means losses have been suffered.
RAM stating "classified as HTM while the rest are marked to market" seems like a confused attempt to obfuscate, which often happens when trying to conceal the facts.
In short, according to Bank Negera's Sahmsiah and Rating Agency Malaysia losses have been suffered, but that does not really matter.
All this brings to mind former Governor Zeti Aziz's who at the height of the of Asian Financial Crisis in 1997, when faced with falling reserves, declared that Bank Negara will be cash rich in Ringgit.
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